Employment Law : New Year’s Resolutions And 90-day Trial Periods

At this time of year, many employees decide, having had few days of sun and sand and reflection on life, to adopt New Year’s resolution – to look for new job. And until recently, there has been every incentive to do so; the skills shortage, combined with booming economy, has meant that skilled employees in particular were in demand, and could often gain significantly from switching employers.
Now, however, we are in the midst of severe recession – and employers are retrenching rather than recruiting. Every week there are more redundancies, and any employee who leaves before securing new employment is either brave or foolhardy.
The risks for those who do seek to change have been increased by the passage (under urgency) of the Government’s 90-day trial legislation. From 1 March 2009, employers with fewer than 20 staff will be able to dismiss employees within the first 90 days of employment without fear of personal grievance claim about the dismissal (provided the employee has agreed to this possibility first).
This change has generated massive publicity, with employers strongly supporting it, but unions and opposition parties generally opposed. The public appears divided, with those in business supporting the change and many employees opposed.
So how will the new law change the existing position? Currently, while employers and employees can agree to an initial probationary period, the employer must still follow fair procedure when dismissing probationary employee. Case law suggests this is not as extensive as the procedure for longer-serving employee, but probationary employee must still be warned of their inadequate performance and given chance to improve. Otherwise, any dismissal risks being unjustified.
The new law will allow employers with fewer than 20 staff to sign new recruits up on terms that allow them to be sacked within 90 days, and have no complaint about the dismissal. The obvious effect is that this will make it far easier for employers to dispense with unsatisfactory new hires.
Trevor Mallard said, when National’s policy was announced (prior to the election), that it is “almost charter for people to abuse newly appointed, low-wage workers”. But as some commentators have pointed out, employers do not hire someone with the intention of firing (or abusing) them within 90 days. Recruitment is an expensive and time-consuming activity, as is training. There are significant skill shortages in New Zealand, and employers want the person they appoint to succeed.
The other counter-argument is that strong rights for workers give security and fairness, and are an essential condition for lifting wages and living standards (especially in recession).
However, National and employers argue that the proposed policy has many significant benefits for New Zealand. The most pertinent of these is the enhanced flexibility it will give to businesses with less than 20 staff. It will encourage small businesses to take risk on workers they might otherwise be reluctant to employ, such as mothers re-entering the workforce.
A further point is that many developed nations already have limited rights for new employees. In the UK, for instance, regardless of the employer’s size, no employee can claim unfair dismissal in the first year of their employment, unless they have been dismissed for an automatically unfair reason, such as unlawful discrimination.
There are potential ambiguities in the new law that will need ironing out by the courts. One is the provision that employees will still be able to bring claims for discrimination. This appears to be intended to relate to discrimination other than in the context of the dismissal itself (because the new law states that no complaints can be made about the dismissal). However, the reality is that discrimination is more common in the dismissal context than any other. Most people would agree that if woman is sacked for being pregnant, she should have right to complain about it.
Is the new law intended to deny remedy to such individuals? Or does the Government merely intend that the rule preventing complaints about dismissals will not apply in discrimination situations? It appears the former is correct, but this will need to be clarified by the courts, and there may be real reluctance to deny individual claimants remedy in cases such as this. This may tempt the courts into deciding that the ambiguity should be resolved in favour of the claimant.
Despite the uncertainties about the 90-day trial amendment, most employers will see this as boon in bad times, allowing them to take risk on new hire without fear of being bitten by claim for unjustified dismissal, in the event it does not work out. In recessionary environment, this must be good thing.
For employees, however, the new law gives them every reason to have different New Year’s resolution in 2009 – hang on to your existing job, rather than thinking about new one.

Greg Cain is partner with law firm Minter Ellison Rudd Watts.

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